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The government-controlled “bad bank” created to wind down Northern Rock and Bradford & Bingley could manage the toxic debt of Royal Bank of Scotland as well, its chief executive said yesterday.

The Times understands that the Parliamentary Commission on Banking Standards is looking at “radical” options to split up RBS, perhaps by creating separate NatWest and RBS banks as well as a “bad bank” of toxic assets for the Treasury to wind down.

Richard Banks, the chief executive of UK Asset Resolution Limited, confirmed that the “bad bank” could be expanded if asked to by the Treasury. “We have created